Franchises Preserve Capital with Equipment Leasing

Many people today dream of owning a business. Being your own boss can be liberating, not to mention profitable. However, small businesses have a disturbingly high failure rate and the new owner wants a prospect with a proven history of success.

Franchises give entrepreneurs the opportunity to open a business with an established regional or national brand identity. With a plan to follow and experts to consult, your chance of success soars. Franchising is the path of choice for the slightly more conservative entrepreneur.

The downside of franchises is that they are often quite expensive, more so than starting a business under your own name. Coming up with the initial capital can be tough and preserving your assets is paramount. One of the largest expenses is equipment financing. When stocking your franchise with equipment, leasing rather than buying is the more cost effective solution.

Start up equipment leasing

The initial franchise fee buys you assets such as the right to use the brand, initial training, and long-term consultation to keep your business running profitably. You still need to acquire the equipment necessary to run the business.

For example, let’s say you buy a franchise of a successful, well-recognized steak house but you need tens of thousands of dollars worth of stoves, tables, and plumbing fixtures. Rather than taking out a huge loan to equip your restaurant, equipment leasing allows you to get the kitchen and dining room furnished without depleting your valuable capital.

Financing upgrades

When you own a franchise, you aren’t truly your own boss. You still have to make changes at the whim of the parent company in order to preserve the brand. Sometimes this is something simple like integrating a national ad campaign into your local marketing efforts or changing a few options on the menu. Sometimes it’s more complicated and expensive.

Parent companies look at the national or global impact of their decisions and project the financials years in advance. They reason that a short-term loss in assets, say from upgrading their restaurants nationwide, is worth it for a long-term boost in profits.

On the multi-billion dollar corporate level that might be fine, but the cost of upgrades can be devastating to the local franchise owner. Small business owners don’t have the deep pockets of the parent corporations and it can be daunting to face the prospect of substantial debt in the hope of future profit.

For a small business, equipment leasing allows significant upgrades to be done in a more cost-effective and less financially damaging manner. You don’t have to squander your resources nor risk your credit rating on expensive new purchases.

Although you may be part of a national or global franchise, you are actually a small business owner. You have the benefit of consulting with experienced support personnel at the parent company, but you are operating on a tight budget and can’t afford huge equipment costs. Equipment leasing is the smart choice for franchise owners.

Medical Financing and Commercial Mortgages

Medical financing continues to enjoy the best loan options in the business. Lenders continue to “salivate” over doctors, dentist, and veterinarians. For example, 90% financing on purchases or construction transactions still exists.

A lot of borrowers are surprised to hear this, especially in regards to construction financing, as most banks are currently no longer considering construction loans. However, there still are a hand full of national, non depository banks and lenders that continue to lend.

One of the interesting things about both purchase or construction financing for medical practitioners is the ability to roll in other non real estate components into the loan. For example, say you where considering purchasing an office condo, which only currently had the outer shell complete. The cost to build out of the space can easily be included. In addition, cost of medical equipment can be rolled into and often amortized over a 25 year schedule, unlike most equipment lenders that normally only offer 5 – 7 year schedules. Also lines of credit/working capital can be factored in, beyond the value of the real estate.

Medical Financing

We are currently working with a doctor in Georgia, on a ground up construction project which is a very good example of this. He purchased the land for $300,000 and the cost for construction is $500,000. For most non medical borrowers they would only be able to have the 80% of the $800,000 financed. However with this doctor, he added $150,000 of equipment and a $250,000 line of credit. He received 90% financing of the $950,000 and still had the line of top of that… With this particular lender they will go up to 133% of the real estate/equipment value (only for medical financing transactions).

Medical practitioners should take some time or work with a seasoned third party provider to produce options beyond what the local banks provide. There can be huge differences, again like higher leverage, longer fixed rates (like 10 years) and amortization schedules to 30 years. As a comparison, most local banks only offer 20 year amortization schedules with 5 year fixed rates, and they expect side business, like your checking, saving, etc if you work with them.

Let’s Know About Computer Financing and Its Bad Credit

Computer financing refers to the various methods business owners use to purchase new computers or computer equipment. Many different agencies, including computer and electronics companies, specialized lending institutions, and banks, offer ways to finance buying new computers or equipment.

The first source for computer financing that a business owner should consider, is the direct manufacturer of computers and computer related products. Companies, such as Dell, Sony, and Apple, usually offer plans that allow a buyer to make small monthly payments on purchases at low interest rates. Monthly payments and interest rates are calculated according to the buyer’s credit report. The better the credit, the better chance a business owner has of paying less. Similar financing can be obtained through retail electronics stores as well, such as Best Buy and Circuit City.

There are lending institutions that deal solely with computer financing. Usually, their terms for financing are more liberal than those of manufacturers and retail stores. Many of these lending agencies do not even require a credit check or a down payment; therefore, individuals with bad credit have a good chance off getting a better deal with these agents.

Banks and credit unions may also have computer financing programs. With banks, however, an individual with bad credit may be turned down or may have to make large payments. Also, approval for financing from a bank could take several days or weeks; with other methods of financing, the approval process usually takes no more than twenty-four hours.

To get the best value for your money a business owner should research all the available options and decide which would be most suitable for his or her needs.

Computer financing for bad credit generally refers to ways for business owners with bad credit to get financing for new computers or equipment. Most computer manufacturers, retail electronics stores, and financing institutions have programs that allow individuals with bad credit to get the computers and equipment needed for a business.

Companies that offer computer financing for bad credit typically require applicants to have a checking or savings account and a minimum monthly income. If the individual is on the verge of bankruptcy they would be charged higher rates along with expensive monthly payments.

Computer financing for bad credit costs more because financing companies take a risk that the buyer may or may not pay off the computers or equipment. The buyer also pays more to compensate for his or her bad credit. When a buyer meets the monthly payments, finance companies report this to national credit institutions, thereby improving the buyer’s credit score.

Other companies that offer computer financing for bad credit are rent-to-own businesses. A buyer gets to use the computer while paying monthly installments towards the ownership of a computer. These companies typically charge higher interest rates and payment plans in comparison to other computer financing agencies.

Once a business owner with bad credit obtains a means of financing a computer, it is important to pay the monthly installments on time to improve his or her credit report and possibly lower the interest rate on the computer.

Commercial Financing – The Benefits of Off-Balance-Sheet Financing

There are two different categories of commercial financing from an accounting perspective: on-balance-sheet financing and off-balance-sheet financing. Understanding the difference can be critical to obtaining the right type of commercial financing for your company.

Put simply, on-balance-sheet financing is commercial financing in which capital expenditures appear as a liability on a company’s balance sheet. Commercial loans are the most common example: Typically, a company will leverage an asset (such as accounts receivable) in order to borrow money from a bank, thus creating a liability (i.e., the outstanding loan) that must be reported as such on the balance sheet.

With off-balance-sheet financing, however, liabilities do not have to be reported because no debt or equity is created. The most common form of off-balance-sheet financing is an operating lease, in which the company makes a small down payment upfront and then monthly lease payments. When the lease term is up, the company can usually buy the asset for a minimal amount (often just one dollar).

The key difference is that with an operating lease, the asset stays on the lessor’s balance sheet. The lessee only reports the expense associated with the use of the asset (i.e., the rental payments), not the cost of the asset itself.

Why Does It Matter?

This might sound like technical accounting-speak that only a CPA could appreciate. In the continuing tight credit environment, however, off-balance-sheet financing can offer significant benefits to any size company, from large multi-nationals to mom-and-pops.

These benefits arise from the fact that off-balance-sheet financing creates liquidity for a business while avoiding leverage, thus improving the overall financial picture of the company. This can help companies keep their debt-to-equity ratio low: If a company is already leveraged, additional debt might trip a covenant to an existing loan.

The trade-off is that off-balance-sheet financing is usually more expensive than traditional on-balance-sheet loans. Business owners should work closely with their CPAs to determine whether the benefits of off-balance-sheet financing outweigh the costs in their specific situation.

Other Types of Off-Balance-Sheet Financing

An increasingly popular type of off-balance-sheet financing today is what’s known as a sale/leaseback. Here, a business sells property it owns and then immediately leases it back from the new owner. It can be used with virtually any type of fixed asset, including commercial real estate, equipment and commercial vehicles and aircraft, to name a few.

A sale/leaseback can increase a company’s financial flexibility and may provide a large lump sum of cash by freeing up the equity in the asset. This cash can then be poured back into the business to support growth, pay down debt, acquire another business, or meet working capital needs.

Factoring is another type of off-balance-sheet financing. Here, a business sells its outstanding accounts receivable to a commercial finance company, or “factor.” Typically, the factor will advance the business between 70 and 90 percent of the value of the receivable at the time of purchase; the balance, less the factoring fee, is released when the invoice is collected.

Like with an operating lease, no debt is created with factoring, thus enabling companies to create liquidity while avoiding additional leverage. The same kinds of off-balance-sheet benefits occur in both factoring arrangements and operating leases.

Keep in mind that strict accounting rules must be followed when it comes to properly distinguishing between on-balance-sheet and off-balance-sheet financing, so you should work closely with your CPA in this regard. But with the continued uncertainty surrounding the economy and credit markets, it’s worth looking into the potential benefits of off-balance-sheet financing for your company.

Picking a Best in Class Finance Partner

WHY OFFER SOFTWARE LEASING & FINANCING

Increase your sales

Shorten your sales cycle

Increase your margins

Increase revenue recognition

Receive payment faster

Make your sales people more effective

Eliminate capital budget delays

Overcome cost objections

Build repeat business

Key Equipment Finance offers innovative and strategic vendor leasing programs for businesses. Our vendor leasing programs will give you the ability to now offer your customers the equipment leasing option for your product.

Vendor Lease Program:

Custom Lease Structure: Our leasing professionals will work closely with your staff to design a program that will provide the leasing alternative for your products.

Sales Training: We offer a lease orientation program for your sales team to show the competitive advantage of leasing vs. purchase.

Lease Rates: Lease rates are continuously updated and will be distributed to your sales team quarterly via e-mail.

Lease Quotation Preparation:We will prepare lease quotations within 24 hours. We will also assist your sales team to provide quotes directly.

Credit Review: Credit reviews are completed within 2 – 4 hours. Leases are non-recourse to you, unless otherwise agreed by you in advance.

Documentation: We prepare, and execute all lease documents. The Master Lease is executed once, and any additional needs simply require a one page Lease Schedule.

Invoice Payment: Invoices are paid within 1 business days of receipt of notice of equipment delivery and acceptance.

Process:

Issue Lease Quote: A lease quote is issued in accordance with the sales quotation.
Submit Credit Application: The customer completes and returns the lease application and financial information for credit review. Key Equipment Finance renders a credit decision within 2 – 4 hours of receipt
Prepare, Forward and Recover Documents: Upon credit approval, lease documents are prepared and forwarded to the customer for signature.

Issue Purchase Offer: Upon receipt of properly executed

documents,Key Equipment Finance issues its purchase order for the products and services to be leased.

Invoice Payment: Upon advice of installation and acceptance, invoices are processed for payment within 1 days of receipt.

Vendors understand the importance of a total solutions sale that includes financing for building repeat equipment sales.

End-users realize many benefits from leasing their equipment but manufacturers and vendors benefit too.

Total Solution Sale

Being able to offer your customer a total solution your equipment and a way to acquire it means you have greater control of the sale. No delays while your customer is trying to arrange financing. Reduce chance your customer will look for alternate equipment solutions.

Easy Upgrades During the Lease; Ideal Position for the Next Sale

When you control your customers financing, you can build-in options for technology upgrades or add-on during the lease and, most importantly, you have a built-in advantage for rolling-over financing of your next generation equipment to your customer.

Larger Ticket Sales

Selling a monthly payment amount that can be designed to fit your customers budget helps you sell additional features that your customer might need, which makes your sale larger.

Your Paid up Front

No accounts receivable problems. You get a check for 100% as soon as the equipment is installed, and installation is verified by your customer.

Makes Closing Simpler

“You can lease this equipment with an option to own. Its 100% financing; 100% deductible with the option to own – at $xx per month over 36 months, or $xx per month over 48 months Which plan is best for your budget?

Helps Close the Sale Now

Leasing gives you the ability to show your customers how to get the equipment they need, when they need it allows you to work within their budget cycles.

Competition

Your competition offers lease finance solutions. So can you.